Accounting - COGS

Discussions
#1

Just wondering how other people account for COGS in their financials.

When my wife goes over our financials she highlights that our expenses are very high, ie 50% of revenue. But around 50% of this is buying SMS from Twilio which we on sell to clients at a small margin. Selling SMS is not our core business but we do sell a lot of them so there is 1000’s of dollars in expenses per month just to buy the SMS. It seems to be make our expenses appear much higher than they really are.

How would you report it in accounting?

#2

I’m not an accountant, but in our business we track the wholesale cost of domain names and SSL certificates as COGS, and that is pulled out of gross revenue to result in our net revenue. Seems that since you’re reselling SMS (core business or not) with a markup, then it qualifies as a cost of goods sold.

#3

Yes, I understand. The real reason is that the cost of the SMS tends to give an artificial indication of our expenses a month, for example if we have $5k expenses and $4.5k are SMS the business is running on pretty low expenditure but you wouldn’t know it looking at the balance sheet without knowing the details.

#4

I find the balance sheet mostly worthless for most small businesses. You should generate a detailed profit and loss statement. It will break everything out by categories and be much more clear.

2 Likes
#5

Whoever you buy SMS from is your supplier of the goods, treat that entity just like your other suppliers. You sell those SMSs and make a small profit on that, treat it as a normal business transaction.
Preparing a profit and loss account will give you a fair idea about how your business is doing.

#6

Whoever you buy SMS from is your supplier of the goods, treat that entity just like your other suppliers. You sell those SMSs and make a small profit on that, treat it as a normal business transaction.
Preparing a profit and loss account will give you a fair idea about how your business is doing.